Kevin Osten
“Over the last decade, under the leadership and political stability established by Prime Minister Narendra Modi, India has passed several reforms that will help attract private investment and foreign capital and make it easier to do business. We put these reforms into three broad categories: increased infrastructure spending, a strong credit cycle, and a burgeoning property cycle.
“Looking at infrastructure, India has passed a US$1.4 trillion National Infrastructure Pipeline plan aimed at improving the country’s competitiveness and includes over 9,000 already-announced projects such as railways, roads, power and gas infrastructure and pipelines. Just a few months ago, India announced a 32 per cent increase in its budget for the 2024 fiscal year. By comparison, the US infrastructure plan that was announced in 2021 was about $1.2 trillion, but that’s for an economy that’s seven times larger than India’s.
“In terms of demographics, India’s population is still growing and is young relative to other countries. This has led to a significant level of loan demand on both the consumer and commercial side, with loan growth projected to be in the mid-teens for the next several years. This contrasts to a lot of other countries, especially when there is no deterioration in credit quality.
“India’s private debt to GDP ratio is also lower than it was 10 years ago, which can’t be said about the other BRICS countries of Brazil, Russia, China and South Africa. With asset quality remaining very high and a declining ratio of bad loans, these are all positive signals for India moving forward.
“India is coming out of a significant economic downturn, which has led to a lot of pent-up demand as the labour market has remained robust. India’s population demographics are also helping underpin this trend, with around 100 million Indian households will move from the lower income to middle and higher-income levels. That will require more housing in an industry that’s chronically been undersupplied.
“Finally, India has also passed the Real Estate Regulation and Development Act, which will not only help consumers but also help take out some of the weaker, less-capitalised players that have destroyed the market in the past. This is going to lead to much better performance and operating metrics for this sector and this cycle, relative to previous ones.”
By Kevin Osten, client portfolio manager
